Australian Dollar steadies as RBA Bullock refrains from declaring victory over inflation

• The Australian Dollar moves little as traders could already have priced in RBA’s rate cut decision.
• The Reserve Bank of Australia has reduced its Official Cash Rate by 25 basis points to 4.10%.
• Fed Governor Michelle Bowman warned that upside inflation risks persist, stressing the need for more clarity before considering rate cuts.

The Australian Dollar (AUD) recovers its daily losses following the Reserve Bank of Australia’s (RBA) policy decision on Tuesday. The central bank decided to lower its Official Cash Rate (OCR) by 25 basis points (bps) to 4.10% on Tuesday, as widely expected, marking the first rate cut in four years.

Reserve Bank of Australia Governor Michele Bullock addressed the media after the policy meeting, stating that it’s clear high interest rates have had an impact. However, Bullock emphasized that it’s too early to declare victory over inflation. She also noted the unexpectedly strong jobs market and clarified that the market’s expectation of further rate cuts is not guaranteed.

Australia’s “Big Four” lenders—CBA, NAB, ANZ, and Westpac—reduced their interest rates by 25 basis points on Tuesday, following the central bank’s decision to cut rates for the first time since November 2020.

Inflation data for December indicated slowing price pressures in Australia, with the latest quarterly Consumer Price Index (CPI) rising less than forecast in the final quarter of 2024. The RBA’s preferred inflation measure, the Trimmed Mean CPI, climbed 0.5% for the quarter—below the expected 0.6%—while the annualized rate declined to 3.2% from 3.5%.

The AUD/USD pair found support following US President Donald Trump’s decision to delay the implementation of reciprocal tariffs. Additionally, the US Dollar (USD) weakened as a disappointing US retail sales report fueled speculation that the Federal Reserve (Fed) might cut interest rates later this year, despite lingering inflation concerns.

Australian Dollar faces challenges amid improving US Dollar as Treasury yields rise

• The US Dollar Index (DXY), which tracks the US Dollar’s performance against six major currencies, edges higher after registering losses in the previous three successive sessions due to improved US Treasury yields. The DXY trades around 106.80, while yields on 2-year and 10-year US Treasury bonds stand at 4.26% and 4.50%, respectively.
• Federal Reserve Governor Michelle Bowman stated on Monday that rising asset prices may have slowed the Fed’s recent progress on inflation. While Bowman expects inflation to decline, she cautioned that upside risks remain and emphasized the need for more certainty before considering rate cuts.
• Meanwhile, Fed Governor Christopher Waller acknowledged late Monday that while inflation has improved, progress has been “excruciatingly” slow. Waller stressed that the Fed must not allow policy uncertainty to hinder data-driven decision-making.
• The US Census Bureau reported on Friday that Retail Sales fell by 0.9% in January, following a revised 0.7% increase in December (previously reported as 0.4%). This decline was sharper than the market’s expectation of a 0.1% drop.
• Fed Chair Jerome Powell said in his semi-annual report to Congress that the board officials “do not need to be in a hurry” to cut interest rates due to strength in the job market and solid economic growth. He added that US President Donald Trump’s tariff policies could put more upward pressure on prices, making it harder for the central bank to lower rates.
• On Monday, Chinese President Xi Jinping led a meeting with Alibaba co-founder Jack Ma and other prominent entrepreneurs, signaling Beijing’s renewed support for the private sector, which is now seen as crucial to economic recovery, according to Bloomberg. Xi emphasized the need to eliminate barriers that hinder equal access to production resources and fair market competition.

Australian Dollar moves below 0.6350; support appears at nine-day EMA

AUD/USD trades near 0.6340 on Tuesday, trending upward within an ascending channel pattern, indicating a bullish market bias. The 14-day Relative Strength Index (RSI) remains above the 50 level, further supporting the bullish outlook.

On the upside, the AUD/USD pair may challenge the upper boundary of the ascending channel at 0.6390, followed by the key psychological resistance at 0.6400.

Support levels include the nine-day EMA at 0.6316, followed by the 14-day EMA at 0.6300. A stronger support zone lies near the lower boundary of the ascending channel at 0.6280.

AUD/USD: Daily Chart